High Drama and Hindsight: The LLP Shield, Post-Andersen

This article explores several disadvantages associated with limited liability partnerships (LLPs) in the wake of the Anderson-Enron debacle. The article explains how conversion to LLP from a traditional partnership may undercut the incentive for partners to devote time and resources to monitoring and risk management activities. Additionally, the article notes that conflicts may arise regarding the payment of debts when a firm, without sufficient malpractice insurance, converts to an LLP. The article delves into the exodus problem caused by the lack of partners’ commitment to the firm. The article also describes the tension between partners over malpractice insurance decisions that arise with LLPs. The article cites asset insufficiency and the potential of moral hazard as potential problems caused by LLPs. The article urges firms to carefully evaluate these potential negative consequences when deciding to transition from a traditional partnership to an LLP.